We Need to Recognize the Gains of Emerging Markets

Recognizing the gains of emerging markets like Columbia, Indonesia, Vietnam, Turkey is not just good manners. It’s good business.

Transcript

Over a year ago

TRANSCRIPT

Peter Henry: As a result of the disciplined policies exercised in emerging economies over the last two decades, we now see a very different global economic landscape. So in 2012, for instance, emerging economies grew by 5.3 percent per year. Advanced nations grew only 1.3 percent per year. And if you look at the countries of the Eurozone, they’re actually in recession. So as a result not just of 2012 but of a couple of decades of accumulated high rates of growth, we now see that emerging economies account for roughly 50 percent of global GDP. And, in particular, there are a number of countries – the so-called BRICS – Brazil, Russia, India, China and South Africa – that account for 20 percent of global GDP.

What does this mean? Well, a critical point is that, in spite of the fact that the BRICS account for 20 percent of global GDP, in the international institutions that really set the economic policy agenda internationally the BRICS only account for 11.5 percent of the vote. So what we have is an imbalance – an imbalance between economic importance in global GDP and economic voice in the setting of the global economic agenda. And so what’s required for the future is a rebalancing of this mismatch.

And beyond the BRICS there are a number of other large emerging market economies – countries like Columbia, Indonesia, Vietnam, Turkey and so on – that are also growing rapidly, again, as a result of adherence to disciplined policies. And so, as much as there’s been a change in the global economic landscape, we expect there’ll be further changes in the global economic landscape as we move forward, and it’s going to be critical for us to provide sufficient voice to these emerging economies.

Recognizing the gains of emerging markets is not just good manners. It’s good business. Prosperity is not a zero sum game. So as emerging economies grow at, you know, 5.3 percent per year, they create prosperity in their countries, and prosperity in their countries – a rising middle class in their countries – means that there will be greater demand for goods and services from advanced nations. This is a key point because we all stand to gain or we all stand to lose, depending on whether we embrace the disruption that’s taken place in the global economy and further embrace the changes in the future.

The macroeconomic landscape has microeconomic implications. So companies that previously thought of themselves as being domestic corporations – for instance, in the United States – now find themselves in a world in which what happens abroad affects their bottom line, whether they’re in the consumer package good industry or you’re in the business of making capital equipment. So whether you’re Proctor & Gamble or whether you’re Caterpillar, these are corporations that now find as much as 50 percent of their top line coming from overseas sales.

And so what’s critical here is that leaders of corporations understand that these questions about reciprocity, about recognizing the turnaround that’s taken place and providing the greater voice for emerging economies so that they will continue down the disciplined path to create the kind of prosperity that is going to drive their sales, recognizing their bigger place in the global economy is not just good manners, it’s good business.